Solicitors Qualifying Examination (SQE) Business Law and Practice (FLK1) Syllabus

Business Law and Practice (FLK1) syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Business Law and Practice (FLK1) in Solicitors Qualifying Examination (SQE), not a summary of it.

1. 1

   Business Organisations: Types, Formation and Constitution

   4 topics

   • Characteristics of business forms
     • Sole traders and partnerships
     • Limited liability partnerships (LLPs)
     • Private and public companies limited by shares
     • Choosing an appropriate business medium
   • Company incorporation and constitution
     • Registration and certificate of incorporation
     • Model articles and bespoke articles
     • Memorandum of association and statement of compliance
     • Shelf companies and conversion of business forms
   • Partnership formation and the Partnership Act 1890
     • Existence and definition of partnership
     • Partnership agreement terms
     • Liability of partners to third parties
   • Legal personality and the corporate veil
     • Salomon v Salomon principle
     • Circumstances of piercing the veil
2. 2

   Corporate Governance, Decision-Making and Constitutional Documents

   4 topics

   • Directors: appointment, powers and duties
     • Types of director and appointment/removal
     • General duties (ss 171-177 Companies Act 2006)
     • Conflicts of interest and declarations
     • Director liability and ratification of breach
   • Shareholders: rights, classes and protection
     • Ordinary, special and written resolutions
     • Class rights and variation
     • Unfair prejudice petitions (s 994)
     • Derivative claims
   • Company meetings and resolutions
     • Board meetings: notice, quorum and voting
     • General meetings: notice periods and procedure
     • Written resolution procedure
   • Company decision-making and statutory filings
     • Companies House filings and registers
     • Persons with significant control (PSC) register
     • Confirmation statement and annual accounts
3. 3

   Company Finance and Funding

   3 topics

   • Equity finance and share capital
     • Allotment and issue of shares
     • Pre-emption rights and disapplication
     • Maintenance of capital and buyback of shares
     • Dividends and distributions
   • Debt finance and security
     • Loans, debentures and overdrafts
     • Fixed and floating charges
     • Registration of charges and priority
   • Sources of finance and capital structure
     • Comparing debt and equity
     • Secured versus unsecured lending
4. 4

   Insolvency and Taxation of Business

   4 topics

   • Corporate insolvency
     • Tests for insolvency
     • Liquidation: compulsory and voluntary
     • Administration and company voluntary arrangements
     • Antecedent transactions (preferences, transactions at undervalue)
   • Personal and partnership insolvency
     • Bankruptcy process and effects
     • Individual voluntary arrangements
   • Taxation of companies and shareholders
     • Corporation tax computation
     • Taxation of distributions and capital gains
     • Close companies and groups (overview)
   • Taxation of partnerships and sole traders
     • Income tax on trading profits
     • Value added tax (VAT) basics

Business Law and Practice (FLK1) flashcards for Solicitors Qualifying Examination (SQE)

23 of 68 cards from the Business Law and Practice (FLK1) deck — real questions with worked answers.

1. What are the three main business mediums (forms) available to those carrying on business in England and Wales?

   (1) Sole trader; (2) Partnership — general partnership (Partnership Act 1890), limited partnership (LPA 1907) or limited liability partnership (LLPA 2000); and (3) Company — most commonly a private company limited by shares, but also public companies, companies limited by guarantee and unlimited companies.

2. Compare a sole trader and a company on the key characteristic of liability.

   A sole trader is the business — there is no separate legal personality, so the trader has unlimited personal liability for all business debts. A company limited by shares is a separate legal person; its members' liability is limited to any amount unpaid on their shares, so personal assets are generally protected.

3. What is the key difference between a private limited company (Ltd) and a public limited company (plc)?

   A plc can offer its shares to the public and may be listed; an Ltd cannot offer shares to the public. A plc must have a minimum allotted share capital of £50,000 (at least one-quarter paid up), needs a trading certificate before trading, must have at least 2 directors and a qualified company secretary, whereas an Ltd needs only one director, no minimum capital and no secretary.

4. Define legal personality and explain its significance for a company.

   Legal (corporate) personality means that on incorporation a company becomes a separate legal person distinct from its members and directors. It can own property, enter contracts, sue and be sued in its own name, and continues in perpetual succession irrespective of changes in membership — established in Salomon v A Salomon & Co Ltd [1897].

5. What did Salomon v A Salomon & Co Ltd [1897] establish?

   That a properly incorporated company is a separate legal entity distinct from its shareholders, even where one person effectively owns and controls it. The company's debts are its own; Mr Salomon (as secured creditor) was not personally liable for the company's debts to unsecured creditors.

6. What documents must be delivered to the Registrar of Companies to incorporate a company under the Companies Act 2006?

   An application for registration (form IN01) containing the company's proposed name, registered office location (jurisdiction), whether liability is limited, whether private or public, details of directors/secretary, subscribers and initial shareholdings; a memorandum of association; articles of association (unless model articles are adopted); and the registration fee. The Registrar then issues a certificate of incorporation.

7. Under the Companies Act 2006, what is the function of the memorandum of association versus the articles of association?

   The memorandum is a short historical document stating that the subscribers wish to form a company and agree to become members (and take at least one share each). The articles are the company's main constitutional document — the rulebook governing internal management, the relationship between the company and members, and decision-making.

8. What are the 'model articles' and when do they apply?

   Model articles are the default set of articles prescribed by the Companies (Model Articles) Regulations 2008. They apply automatically, so far as the company does not register its own articles, to companies formed under the CA 2006. There are separate models for private companies limited by shares, private companies limited by guarantee, and public companies.

9. What is the legal effect of a company's articles of association under s33 Companies Act 2006?

   The articles (and any constitutional resolutions) bind the company and its members as though there were covenants on the part of the company and each member to observe them. They form a statutory contract between the company and each member, and between the members themselves — but only enforceable in respect of membership rights.

10. What special resolution and procedure are required to amend a company's articles?

    Articles are amended by special resolution (at least 75% majority). A copy of the amended articles and the resolution must be filed at Companies House within 15 days. Any provision entrenched under s22 CA 2006 requires the specified more restrictive procedure (e.g. unanimity) to change.

11. Under the Partnership Act 1890 s1, how is a partnership defined?

    A partnership is 'the relation which subsists between persons carrying on a business in common with a view of profit.' No formality or written agreement is required — it can arise from conduct.

12. List the rules in s2 Partnership Act 1890 for determining whether a partnership exists.

    (1) Joint/common ownership of property does not itself create a partnership; (2) sharing of gross returns does not itself create a partnership; (3) receipt of a share of the profits is prima facie evidence of partnership, but not conclusive — e.g. it does not make a lender, employee paid by commission, or seller paid out of profits a partner.

13. Under the Partnership Act 1890, what are the default rules on profit-sharing and capital contribution between partners?

    Subject to contrary agreement (s24), partners share equally in capital and profits and must contribute equally towards losses, regardless of unequal capital contributions or workload. Partners are not entitled to a salary, nor to interest on capital, but are entitled to indemnity for liabilities incurred in the ordinary course of the firm's business.

14. How does a partner's liability for the firm's debts work under the Partnership Act 1890?

    Every partner is jointly liable with the other partners for all debts and obligations of the firm incurred while a partner (s9), and the firm is liable jointly and severally for wrongs/torts committed in the ordinary course of business (s10–12). Each partner has unlimited personal liability for partnership debts.

15. Under the Partnership Act 1890, when can a partner bind the firm to a contract with a third party?

    Under s5, the acts of every partner who does any act for carrying on, in the usual way, business of the kind carried on by the firm bind the firm — unless the partner had no authority and the third party either knew this or did not know/believe them to be a partner. This is the partner's apparent (ostensible) authority as agent of the firm.

16. What is the liability of an incoming partner and a retiring (outgoing) partner under the Partnership Act 1890?

    An incoming partner is not liable for debts incurred before they joined (s17). A retiring partner remains liable for debts incurred while a partner, and may remain liable for future debts to existing creditors unless proper notice is given — actual notice to existing customers and notice in the London Gazette to new ones (s36); failure to give notice can create liability by 'holding out' (s14).

17. Under the Partnership Act 1890, on what events is a partnership dissolved by default?

    Subject to agreement: expiry of a fixed term or completion of the venture (s32); death or bankruptcy of any partner (s33); a partner's share being charged for their separate debt (option of others, s33); illegality (s34); and by court order on grounds such as a partner's incapacity, prejudicial conduct, or the business being carried on only at a loss (s35).

18. What is the order of distribution of assets on dissolution of a partnership under s44 Partnership Act 1890?

    Assets (including partner contributions to make up losses) are applied: (1) paying outside creditors; (2) repaying partners advances/loans beyond capital; (3) repaying partners' capital; and (4) any residue divided among partners in the profit-sharing ratio. Losses (including capital deficiency) are paid first out of profits, then capital, then by partners in their profit-sharing ratio.

19. How does a Limited Liability Partnership (LLP) differ from a general partnership?

    An LLP (under the Limited Liability Partnerships Act 2000) is a body corporate with separate legal personality and limited liability for its members. It must be registered at Companies House, file accounts and an annual confirmation statement, and is taxed transparently like a partnership (members taxed on profit shares), but unlike a general partnership it offers limited liability and is publicly registered.

20. What is meant by 'piercing (lifting) the corporate veil' and when will the court do so?

    Piercing the veil means disregarding the company's separate personality to hold members/directors directly liable. Following Prest v Petrodel Resources [2013], the courts will only do so in very limited circumstances, principally the 'evasion principle' — where a person interposes a company to deliberately evade an existing legal obligation or frustrate its enforcement. Otherwise the Salomon principle is rigorously upheld.

21. How are directors of a company appointed, and what are the minimum requirements?

    Directors are appointed as set out in the articles — typically by ordinary resolution of the members or by a decision of the existing board (model article 17). A private company must have at least one director, and a public company at least two; at least one director must be a natural person aged 16 or over. Appointments must be notified to Companies House within 14 days.

22. Distinguish a de jure director, a de facto director and a shadow director.

    A de jure director is validly appointed and registered. A de facto director acts as a director and is held out as one without valid appointment. A shadow director is a person in accordance with whose directions or instructions the directors are accustomed to act (excluding professional advisers giving advice). All three can owe directors' duties and incur liabilities.

23. List the seven general (codified) directors' duties under ss171–177 Companies Act 2006.

    s171 — duty to act within powers; s172 — duty to promote the success of the company for the benefit of members as a whole; s173 — duty to exercise independent judgment; s174 — duty to exercise reasonable care, skill and diligence; s175 — duty to avoid conflicts of interest; s176 — duty not to accept benefits from third parties; s177 — duty to declare an interest in a proposed transaction or arrangement.

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